As filed with the Securities and Exchange Commission on October 6, 1999.
Registration No. 000-27563
--------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
--------------------------------
SARATOGA RESOURCES, INC.
(Name of small business issuer in its charter)
TEXAS 76-0314489
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 CONGRESS AVENUE, SUITE 1550
AUSTIN, TEXAS 78701
(512) 478-5717
(Address, including zip code, and telephone number,
including area code, of Issuer's principal executive offices)
--------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
--------------------------------
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<TABLE>
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TABLE OF CONTENTS
PAGE
<S> <C>
PART I .........................................................................................................3
ITEM 1. DESCRIPTION OF BUSINESS.........................................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................................................7
ITEM 3. DESCRIPTION OF PROPERTY.........................................................................8
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................................................9
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
................................................................................................9
ITEM 6. EXECUTIVE COMPENSATION.........................................................................11
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................12
ITEM 8. DESCRIPTION OF SECURITIES......................................................................12
General ......................................................................................12
Common Stock...................................................................................12
Preferred Stock................................................................................12
PART II ........................................................................................................13
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
...............................................................................................14
ITEM 2. LEGAL PROCEEDINGS..............................................................................14
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ......................................................................14
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES........................................................15
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS......................................................15
PART F/S FINANCIAL STATEMENTS...........................................................................15
PART III. INDEX TO EXHIBITS..............................................................................16
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS AND RECENT DEVELOPMENTS
Since the completion in 1996 of the sale of a majority of the oil and
gas producing Saratoga Resources Inc., a Texas Corporation (the "Company") the
Company had been in the process of pursuing various potential business
opportunities, while continuing its oil and gas efforts. In this regard, the
Company recently entered into a purchase and sale agreement for the acquisition
of certain oil and gas properties for a purchase price of $27.5 million. The
Company was ultimately unsuccessful in consummating the acquisition, but was
awarded a $400,000 transaction break-up fee. The Company continues to pursue
hydrocarbon production and mineral lease acquisitions, as well as prospect
development. The Company retains consultants for the purpose of evaluating
mineral lease acquisitions in Houston County, Texas, and production purchases in
the Los Angeles basin. Additionally, the Company retains a
geological/geophysical firm to utilize the Company data to identify exploration
and development prospects. In 1998 the Company considered the acquisition or
development of numerous businesses, and these efforts resulted in the
transactions hereinafter described.
On March 27, 1998, the Company, which was formerly a wholly owned
subsidiary of Saratoga Resources, Inc., a Delaware Corporation (the
"Predecessor"), entered into a consulting agreement with an independent oil and
gas exploration company to utilize the Company's extensive seismic and well log
data for the identification of oil and gas exploration and development
prospects. In this regard, the Company is now pursuing a re-entry project in
Dawson County, Texas. On March 18, 1999, the Company entered into a second
agreement with the same company to evaluate opportunities in the Louisiana
Cretaceous shelf and extended the 1998 agreement. Under these agreements, the
Company provides advisory services and receives compensation in the form of a
working interest and/or royalties of up to 33% generated from identified
prospects.
On August 14, 1999 the Predecessor, then the shell company parent of
the Company, closed merger agreements with each of PrimeVision Health, Inc., a
Delaware corporation ("Prime"), which is a vertically integrated vision services
company, and OptiCare Eye Health Centers, Inc., a Connecticut corporation
("OptiCare"), which is a provider of consulting, administrative and other
support services to ophthalmology and optometry eye care centers located in
Connecticut. Pursuant to the merger agreements, the Predecessor acquired Prime
and OptiCare in an all-stock transaction by issuance to the shareholders of
OptiCare and Prime shares of the Predecessor's Common Stock constituting 97.5%
of the outstanding Common Stock of the Predecessor (the "Eye Care Acquisition").
In a related transaction, the Company was spun off by the Predecessor to
continue its prior business operations.
In the spin-off, the Predecessor, which was then the 100% owning parent
entity of the Company, made an in-kind distribution of all of the Company's
issued and outstanding stock to the shareholders of the Predecessor. The
distribution was made on the basis of one share
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of the Company's common stock, for each share of the Predecessor's stock. The
record date for the spin-off was August 9, 1999, resulting in the distribution
of 3,465,292 shares of the Company's common stock.
HISTORY
The Company was incorporated in Texas on July 25, 1990 under the name
Saratoga Resources, Inc. It became a wholly-owned subsidiary of the Predecessor
in 1993.
On May 25, 1994, the Company established a new lending relationship
with Internationale Nederlanden (U.S.) Capital Corporation, a Delaware
corporation ("ING"), by executing a credit agreement and related documents (the
"Pre-existing Credit Agreement"). As of that date, the Company used the various
credit facilities that were provided by ING (i) to acquire 57.15% of the
outstanding Common Stock of Lobo Energy, Inc., a Texas corporation ("LEI"), (ii)
pay off all debt associated with those properties at the time of acquisition,
(iii) retire all credit facilities at BankOne, (iv) develop existing oil and gas
properties, and (v) provide general working capital. The Company paid a purchase
price of $6,000,375 for the LEI Common Stock.
On March 31, 1995, the Company and ING entered into a new credit
agreement (the "Credit Agreement") to refinance the existing debt to ING, to
purchase the remaining LEI Common Stock and provide additional money for
acquisitions of additional properties. On that date, the Company acquired the
remaining 42.85% of the Common Stock of LEI from Mr. Peter P. Pickup ("Pickup").
As a result of this acquisition, the Company owned and controlled 100% of the
Common Stock outstanding of LEI. Concurrently with the purchase of the LEI
Common Stock, LEI assigned to the Company all of LEI's oil and gas assets. The
total purchase price paid by the Company was $5,401,000. The Company also
refinanced $2,411,000 in debt due ING allocable to LEI and its properties.
On May 7, 1996, the Company entered into an agreement (the
"ING-P/Energy Agreement") by and among the Predecessor, the Company, Lobo
Operating, Inc., a Texas corporation ("LOI"), and LEI (the Predecessor, the
Company, LOI and LEI, its direct or indirect subsidiaries being sometimes
collectively referred to herein as the "Saratoga Companies"), Thomas F. Cooke
("Cooke"), Joseph T. Kaminski ("Kaminski"), Randall F. Dryer ("Dryer") (the
Saratoga Companies, Cooke, Kaminski and Dryer sometimes referred to herein as
the "Saratoga Parties"), Prime Energy Corporation, a Delaware corporation
("P/Energy"), and ING. (Prime Energy Corporation has no affiliation with
PrimeVision Health, Inc., referred to elsewhere herein.)
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The ING-P/Energy Agreement provided for a sale of virtually all of the
assets (the "Interests") of the Company, LOI and LEI (the Company, LOI and LEI
sometimes collectively referred to herein as the "Saratoga Entities") to ING
pursuant to ING's rights under that certain Credit Agreement and related
documents (collectively the "Credit Agreement") dated March 30, 1995, by and
among the Predecessor, the Company, LEI and ING. Upon consummation of the
ING-P/Energy Agreement on May 7, 1996, at which ING was the highest bidder, ING
concurrently sold the Interests to P/Energy for cash consideration of $7,180,000
and additional consideration as provided in the agreement. The cash proceeds
from the sale were applied to the settlement of outstanding vendor debt and
other related liabilities of the Saratoga Companies, and $1,500,000 was paid to
the Predecessor.
The Predecessor, the Company, LEI and ING entered into the Credit
Agreement to facilitate the acquisition by the Company of the LEI assets
previously owned by Pickup. Under the terms of the Credit Agreement, ING
established two credit facilities in favor of the Company in the combined
maximum principal amount of $19,000,000, subject to the borrowing base
limitations set forth therein. All oil and gas properties (the "Properties")
owned by the Saratoga Entities were pledged as collateral under the Credit
Agreement and all obligations to ING were also guaranteed by the Predecessor and
all of its subsidiaries. Funds obtained from these credit facilities were
anticipated to be used for the development of the Properties by the Company.
Subsequent to entering into the Credit Agreement, the Predecessor
engaged Internationale Nederlanden (U.S.) Securities Corporation ("ING
Securities"), a subsidiary of ING, to assist the Predecessor in a private
placement of Predecessor stock. The private placement efforts were not
successful and additional funds necessary for the development of the Properties
were not provided by ING.
The failure of the private placement efforts combined with the shortage
of funds for the development of its Properties placed the Company in a severe
financial crisis. In an attempt to salvage the maximum value of the Saratoga
Companies for the benefit of the other creditors, the Predecessor and its
shareholders spent several months examining and pursuing various alternatives
with respect to (i) the possible refinancing and/or restructuring of the debt of
the Saratoga Companies, (ii) the sale of the Saratoga Companies or their
underlying assets, and (iii) the prosecution or settlement of certain potential
claims against ING.
Facing what the Company believed to be an eminent foreclosure action by
ING which would restrict the Company's objectives and its ability to consummate
negotiations with P/Energy, in April of 1996, the Saratoga Companies filed a
lawsuit against ING and ING Securities, the principal relief sought therein
being injunctive relief from the threatened foreclosure. Subsequently, the
Company and ING entered into discussions in an attempt to reach a final
resolution of ING's rights under the Credit Agreement and the Predecessor's
asserted claims. In reviewing its options, the Company believed that the sale of
assets pursuant to the ING-P/Energy Agreement, consummated as described above on
May 7, 1996, would leave the Company in a better financial position than a
contested foreclosure sale by ING.
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EMPLOYEES
On October 5, 1999 the Company employed two full time employees
consisting of one executive officer (the Chief Executive Officer) and an office
manager.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Since the consummation of the ING-P/Energy Agreement (see Item 1,
History"), management of the Company has sought new business opportunities
through acquisitions and through use of the Company's database and expertise in
the oil and gas business, with a view to enhancing shareholder value. Results of
operations should be evaluated in light of the Company's being in a period of
transition, in which management is seeking to develop new businesses that will
ultimately generate earnings and otherwise enhance shareholder value.
Prior to the closing of the Eye Care Acquisition in August, 1999, the
Company was one of four direct, wholly-owned subsidiaries of the Predecessor.
The four subsidiaries were the Company, LOI, LEI and Saratoga Holdings I, Inc.,
a Texas Corporation ("Holdings"). Concurrent with or immediately prior to the
closing of the Eye Care Acquisition, the Predecessor (i) transferred all of the
issued and outstanding stock of LOI and LEI to the Company, causing LOI and LEI
to become direct, wholly-owned subsidiaries of the Company; (ii) spun off the
stock of the Company to the shareholders of the Predecessor; and (iii) spun off
all but 301,375 shares (or approximately 9% of the total number of shares) of
the issued and outstanding stock of Holdings to the shareholder of the
Predecessor; those shares in Holdings which were not spun off were transferred
to the Company. As a result of these transactions, the Company became the
successor of the Predecessor's business. Accordingly, the consolidated financial
condition and history of the Company is essentially the same as that of the
Predecessor, except for (y) the spin-off of Holdings and (z) the requirement
that the Predecessor, upon the closing of the Eye Care Acquisition, was required
to have approximately $130,000 in cash, with no other assets or liabilities.
RESULTS OF OPERATIONS
Revenues. Total revenues for fiscal 1998 were $39,000, as compared to
$35,000 for fiscal 1997.
Costs and Expenses. Cost and expenses were reduced in 1998 as a result
of determined cost control efforts of management. Costs and expenses for fiscal
1998 totaled approximately $363,000, compared to $462,000 for fiscal 1997.
Net Loss. Consolidated net loss was approximately $324,000 in 1998,
compared to a net loss of $118,000, an increase of approximately $206,000. In
fiscal 1997, the Predecessor had a non-recurring gain of approximately $309,000
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that was attributable to the settlement of litigation with a former officer and
shareholder. Excluding the effect of such non-recurring gain, the Predecessor's
net loss in 1998 would be $103,000 less than the net loss in 1997, which
management attributes to its cost control efforts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets as of October 5, 1999 consist of 301,375 shares of
Holdings, 150,000 shares of OptiCare, 100% of the stock of both LOI and LEI,
furniture fixtures and equipment necessary to continue the business, seismic
data and cash. The 150,000 shares of OptiCare have been informally pledged as
collateral on $100,000 of debt associated with the Eye Care Acquisition, $20,000
of which has been paid off. The Company believes that its assets will be
sufficient to conduct its business for the next 12 months. Management believes
that its cost control efforts will enable the Company to continue its operations
for the next 12 months without additional cash.
YEAR 2000 ISSUE
The Company utilizes software and related technologies that may be
affected by the Year 2000 problem, which is common to most businesses. The
Company is addressing the effect of the potential Year 2000 problem on all its
critical systems and with all of its critical vendors, customers and clients. At
this time, critical information systems throughout the Company are Year 2000
compliant. No extra costs were incurred in obtaining this compliance. Management
has determined that no critical business areas will be adversely affected by
Year 2000 issues, but the Company continues to work with its vendors, customers
and others to ensure a smooth transition. Based on the foregoing, management
does not consider any contingency plan to be necessary, and management believes
that any costs and risks related to Year 2000 compliance will not have a
material adverse impact on the liquidity or financial position of the Company.
If the Company hereafter engages in acquisitions or business combinations,
management will address possible new Year 2000 problems related to such
transactions at the time of such transactions.
FORWARD-LOOKING STATEMENTS
Statements contained herein that relate to the Company's future
performance, including without limitation statements with respect to the
Company's anticipated results for any portion of 1999, shall be deemed forward
looking statements within the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. A number of factors affecting the Company's
business and operations could cause actual results to differ materially from
those contemplated by the forward looking statements. Those factors include, but
are not limited to, demand and competition for the Company's products and
services, changes in the requirements of clients and customers, and changes in
general economic conditions that may affect demand for the Company's products
and services or otherwise affect results of operations or the value of the
Company's assets. The forward-looking statements that are included in this
report were prepared by management and have not been audited by, examined by,
compiled by or subjected to agreed-upon procedures by independent accountants,
and no third party has independently verified or reviewed such statements.
Readers of this report should consider these facts in evaluating the information
and are cautioned not to place undue reliance on the forward-looking statements
contained herein.
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ITEM 3. DESCRIPTION OF PROPERTY
The Company maintains an office in Austin, Texas, on a month-to-month
basis at a current rate of $2,175 per month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information concerning the shares of the
Company's stock beneficially owned by each director of the Company and all
directors and officers as a group and each holder of over five percent of any
class of outstanding stock as of October 5, 1999.
The mailing address for all officers and directors is 301 Congress Avenue, Suite
1550, Austin, Texas 78701.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL
OWNER PERCENT CLASS OF STOCK SHARES PERCENT(1)
- ------------------ -------------- ------ ----------
<S> <C> <C> <C>
Thomas F. Cooke Common 2,420,422(2) 69.8%
Kevin M. Smith Common 238,295(3) 6.9%
All executive officers and Common 2,558,717 76.7%
directors as a group (2 persons)
<FN>
1 Based on 3,465,292 shares currently outstanding, as the result of a 34.65292 to 1 stock split (i.e., 34.65292
shares were issued in exchange for each 1 share outstanding) effective August 9, 1999 with respect to the
100,000 shares of Common Stock previously outstanding.
2 Includes 109,148 shares held by June Cooke, Mr. Cooke's spouse, of which Mr. Cooke disclaims beneficial
ownership.
3 Includes 20,000 shares held by Sandra Smith, Mr. Smith's spouse, of which Mr. Smith disclaims beneficial
ownership.
</FN>
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Executive officers of the Company and its wholly owned subsidiaries
serve at the pleasure of the Board of Directors and are elected annually at a
meeting of the Board of Directors. Set forth are the directors and executive
officers as of October 5, 1999.
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<TABLE>
<CAPTION>
Name Position Age Term of Office
---- -------- --- --------------
<S> <C> <C> <C>
Thomas F. Cooke Chairman of the Board, Chief Executive 50 1 yr.
Officer, President, Treasurer and Secretary
Kevin M. Smith Director 54 1 yr.
</TABLE>
BIOGRAPHICAL INFORMATION
As of October 5, 1999, the following provides information as to
each executive officer and director of the Company, including age, principal
occupation and business experience during the last five years:
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THOMAS F. COOKE, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, PRESIDENT,
TREASURER AND SECRETARY, age 50, was one of the co-founders of Saratoga
Resources, Inc. in 1990. Mr. Cooke has been a self employed independent oil and
gas producer for the last 17 years. The Predecessor acquired the Company in
September 1993, at which time Mr. Cooke was elected Chairman of the Board and
Chief Operating Officer of the Predecessor, and the sole officer and director of
the Company. Mr. Cooke is a member of the Texas Independent Producer and Royalty
Owner Association and serves as Director and Chairman of the North American
Energy Issues Committee. Mr. Cooke replaced Joseph T. Kaminski as Chief
Executive Officer on April 3, 1996.
KEVIN M. SMITH, DIRECTOR, age 54, has in excess of 30 years experience as an
exploration geophysicist. In 1977, after ten years with Amoco Production, Mr.
Smith joined R. Brewer and Company, a geophysical consulting firm. In 1984, he
formed his own geophysical consulting firm (Kevin M. Smith, Inc.), which he
continues to operate. Mr. Smith completed three years of undergraduate work at
the University of Texas in 1966 and received a Bachelor of Science degree with a
dual major of Geology and Geophysics at the University of Houston in 1967. He
also did post graduate studies in Geology and Geophysics at the University of
Houston. Mr. Smith has written professional papers on innovative uses of
geophysics in horizontal drilling projects.
ITEM 6. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all cash
compensation paid, distributed or accrued for services, including salary and
bonus amounts rendered in all capacities, for the Company and Predecessor, as
indicated, during the fiscal years ended, or ending, December 31, 1999, 1998,
1997, and 1996. All other tables required to be reported have been omitted as
there has been no compensation awarded to, earned by or paid to any of the
Predecessor's executives in any fiscal year covered by the tables.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Fiscal Salary/
Principal Position Entity Year Ended Annual Compensation
- ------------------ ------ ---------- -------------------
<S> <C> <C> <C>
Thomas Cooke, CEO Company 1999 $120,000
Thomas Cooke, CEO Predecessor 1998 $120,000
Thomas Cooke, CEO Predecessor 1997
$120,000(1)
Thomas Cooke, CEO Predecessor 1996
$116,500(2)
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<FN>
4 During fiscal years 1996 and 1997, the Predecessor deferred portions of
salary due to Mr. Cooke, which were paid in full later in 1997,
together with $8,048 in interest. The salary information set forth in
the Summary Compensation Table for 1997 does not include (1) cash paid
in 1997 for salary deferred from prior years or (ii) interest payment
on any deferred salary.
5 Includes $60,000 which was earned in fiscal year 1996, but deferred and
paid to Mr. Cooke in fiscal year 1997.
</FN>
</TABLE>
DIRECTOR COMPENSATION
Directors of the company currently serve without any compensation for
their services, either in the form of monetary compensation, stock or stock
options.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective May 17, 1997, the Predecessor purchased 870,737 shares of
the Predecessor's Common Stock and all Special Options from Dr. Randall F.
Dryer, who resigned as a Director of the Predecessor effective as of the same
date. The total purchase price for the Common Stock and the options was
$175,000.
Mr. Kaminski assigned Special Options back to the Predecessor as part
of the settlement agreement dated March 10, 1997. Such assignment was part of
the transaction wherein the Predecessor, Cooke, Dryer and Dryer, Ltd. and
Kaminski settled a lawsuit among Mr. Kaminski, the Predecessor and certain other
parties.
Mr. Cooke may be deemed a parent of the Company by reason of his beneficial
ownership of approximately 70% of the Company's outstanding voting stock.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The total number of shares of all classes of capital stock which the
Company has the authority to issue is 100,100,000 of which (a) 100,000,000
shares are designated as Common Stock, par value $0.001 per share, and (b)
100,000 shares are designated as Preferred Stock par value $0.001 per share.
COMMON STOCK
Each share of Common Stock of the Company has identical rights and
privileges in every respect. The holders of shares of Common Stock are entitled
to vote upon all matters submitted to a vote of the shareholders of the Company
and are entitled to one vote for each share of Common Stock held. Subject to the
prior rights and preferences applicable to shares of the Preferred Stock , the
holders of shares of the Common Stock are entitled to receive such dividends
(payable in cash, stock, or otherwise) as may be declared thereon by the
Company's Board of Directors.
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PREFERRED STOCK
There is currently no separate series of Preferred Stock designated.
However, shares of the Preferred Stock may be issued from time to time in one or
more series. Except as limited by the Company's Articles of Incorporation, the
shares of each series shall have such designations, preferences, limitations,
and relative rights, including voting rights, as shall be provided in a
resolution or resolutions providing for the issue of such series adopted by the
Company's Board of Directors. In general, the Board of Directors is authorized
to establish and designate series of the Preferred Stock , to fix the number of
shares constituting each series, and to fix the designations and the
preferences, limitations, and relative rights, including voting rights, of the
shares of each series and the variations of the relative rights and preferences
as between series, and to increase and to decrease the number of shares
constituting each series. The relative powers, rights, preferences, and
limitations may vary between and among series of Preferred Stock in any and all
respects so long as all shares of the same series are identical in all respects.
The authority of the Board of Directors with respect to each series includes the
authority to determine the following:
(a) the rate or rates and the times at which dividends on the
shares of such series shall be paid, the periods in respect of which
dividends are payable, the conditions upon such dividends, the
relationship and preferences, if any, of such dividends to dividends
payable on any other class or series of shares, whether or not such
dividends shall be cumulative, partially cumulative, or noncumulative;
(b) whether or not the shares of such series shall be
redeemable or subject to repurchase at the option of the Company;
(c) the rights of the holders of shares of such series in the
event of the voluntary or involuntary liquidation, dissolution, or
winding up of the Company and the relationship or preference, if any,
of such rights to rights of holders of stock of any other class or
series;
(d) whether or not the shares of such series shall have voting
powers and, if such shares shall have such voting powers, the terms and
conditions thereof;
(e) whether or not a sinking fund shall be provided for with
regard to the redemption of the shares of such series;
(f) whether or not the shares of such series, at the option of
either the Company or the holder or upon the happening of a specified
event, shall be convertible into stock of any other class or series;
(g) whether or not the shares of such series, at the option of
either the Company or the holder or upon the happening of a specified
event, shall be exchangeable for securities, indebtedness, or property
of the Company.
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PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's stock is not currently listed on any stock exchange.
The Predecessor's stock was not listed on any stock exchange but was
from time to time reported by NASD on the OTC Bulletin Board under the symbol
"SRIK." The range of high and low bid information for the shares of the
Predecessor's stock for the last two complete fiscal years, as reported by the
National Quotation Bureau, is set forth below. Such quotations represent prices
between dealers, do not include retail markup, markdown or commission, and may
not represent actual transactions.
High Low
Year Ended December 31, 1997
- ---------------------------------------
First Quarter $0.281 $0.094
Second Quarter 0.219 0.094
Third Quarter 0.219 0.094
Fourth Quarter 1.125 0.063
Year Ended December 31, 1998
- ---------------------------------------
First Quarter 0.188 0.188
Second Quarter 1.125 0.188
Third Quarter 0.250 0.250
Fourth Quarter 0.250 0.063
As of October 5, 1999, 3,465,292 shares of the Company's Common Stock
were issued and outstanding and held by approximately 1,350 holders of record.
Neither the Company nor the Predecessor has ever paid cash dividends
and the Company does not intend to do so for the foreseeable future. Future
earnings, if any, will be used to support the Company's growth. Any future
determination as to the payment of dividends on the stock will be at the
discretion of the Board of Directors and will depend upon the Company's
operating results, financial condition, capital requirements, restrictions
imposed by lenders, if any, and such other factors as the Board of Directors may
deem relevant.
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
(a) Previous independent accountants.
(i) On March 29, 1999, the Board of Directors of
the Predecessor determined not to engage
Hein and Associates ("Hein") to audit the
Predecessor's consolidated financial
statements as of and for the year ended
December 31, 1998.
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(ii) The reports of Hein on the consolidated
financial statements of the Registrant as of
and for the years ended December 31, 1997
and 1996 contained no adverse opinion or
disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope
or accounting principal.
(iii) The management of the Company requested that
Hein furnish it with a letter addressed to
the Securities and Exchange Commission
stating whether or not it agrees with the
above statements which was filed with the
Securities and Exchange Commission. Hein did
provide such a letter, a copy of which is
attached as Exhibit 16.
(iv) In connection with Hein's audits as of and
for the years ended December 31, 1997 and
1996 and through March 29, 1999, there have
been no disagreements with Hein on any
matter of accounting principles or
practices, financial statement disclosure,
or auditing scope or procedure, which dis-
agreements if not resolved to the satisfac-
tion of Hein would have caused them to make
reference thereto in their reports on the
consolidated financial statements as of and
for the years ended December 31, 1997 and
1996.
(b) New independent accountants. On March 29, 1999 the
Board of Directors of the Predecessor formally
approved the appointment of Ernst & Young LLP as its
independent accountant to audit the Predecessor's
consolidated financial statements as of and for the
year ended December 31, 1998. In view of the rela-
tionship between the Predecessor and the Company, the
Company has selected Ernst & Young LLP as its indep-
endent auditors.
(c) Other. The decision to change independent accounts
was approved by the Board of Directors of the
Predecessor. The Predecessor did not have an audit
committee.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Restated Articles of Incorporation, the
Company indemnifies any person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding
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<PAGE>
because the person (i) is or was a director or officer of the Company or (ii)
while a director or officer of the Company, is or was serving at the request of
the Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, to the fullest extent that a corporation may
grant indemnification to a director under the Texas Business Corporation Act, as
the same exists or may hereafter be amended.
PART F/S FINANCIAL STATEMENTS
Prior to the closing of the Eye Care Acquisition in August, 1999, the
Company was one of four direct, wholly-owned subsidiaries of the Predecessor.
The four subsidiaries were the Company, LOI, LEI and Holdings. Concurrent with
or immediately prior to the closing of the Eye Care Acquisition, the Predecessor
(i) transferred all of the issued and outstanding stock of LOI and LEI to the
Company, causing LOI and LEI to become direct, wholly-owned subsidiaries of the
Company; (ii) spun off the stock of the Company to the shareholders of the
Predecessor; and (iii) spun off all but 301,375 shares (or approximately 9% of
the total number of shares) of the issued and outstanding stock of Holdings to
the shareholder of the Predecessor; those shares in Holdings which were not spun
off were transferred to the Company. As a result of these transactions, the
Company became the successor of the Predecessor's business. Thus, the
consolidated financial condition and history of the Company is essentially the
same as that of the Predecessor, except for (y) the spin-off of Holdings and (z)
the requirement that the Predecessor, upon the closing of the Eye Care
Acquisition, was required to have approximately $130,000 in cash, with no other
assets or liabilities. Accordingly, pursuant to Item 310 of Regulation S-B, it
is the Financials of the Predecessor which are attached hereto.
See the Index to Financial Statements appearing at page F-1 hereof.
PART III. INDEX TO EXHIBITS
The following Exhibits are filed herewith:
Exhibit No. Description
- ----------- -----------
3(i) Restated Articles of Incorporation
(With Amendments)
3(ii) Bylaws
16 Letter on changes in certifying
account
21 Subsidiaries of the Registrant
27 Financial Data Schedule
SIGNATURE
In accordance with Section 12 of the Securities Act of 1934, the
Company caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
SARATOGA RESOURCES, INC.
By: Date: __________, 1999
------------------------------------------
Thomas F. Cooke
Chief Executive Officer
15
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Six Months Ended June 30, 1999
Table of Contents
<S> <C>
Part 1. Financial Information (unaudited)
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998....................................3
Consolidated Statements of Operations
for the three and six months ended June 30, 1999 and 1998.............................................4
Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998.......................................................5
Notes to Consolidated Financial Statements...............................................................6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
JUNE 30 December 31
1999 1998
----------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 96 $ 290
Marketable securities 6 11
Investment in past due accounts receivable 9 10
--------- ---------
Total current assets 111 311
Equipment, net of accumulated depreciation 31 36
--------- ---------
Total assets $ 142 $ 347
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued liabilities $ - $ 10
Current maturities of debt 5 5
--------- ---------
Total current liabilities 5 15
Long-term debt, net of current portion 13 16
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized - -
Common stock, $.001 par value; 50,000,000 shares
authorized, 3,465,292 shares issued and outstanding at
June 30, 1999 and December 31, 1998 3 3
Additional paid-in capital 2,490 2,490
Accumulated deficit (2,335) (2,148)
Treasury stock, at cost (2) (2)
Other comprehensive loss (32) (27)
--------- ---------
Total stockholders' equity 124 316
--------- ---------
Total liabilities and stockholders' equity $ 142 $ 347
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share data)
THREE MONTHS ENDED Six Months Ended
JUNE 30 June 30
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of marketable securities $ - $ - $ - $ 21
Interest income - 5 1 12
-------------- -------------- -------------- --------------
- 5 1 33
Costs and expenses:
Depreciation 3 2 5 4
General and administrative 92 96 183 191
-------------- -------------- -------------- --------------
95 98 188 195
Loss before income taxes (95) (93) (187) (162)
Income tax benefit - - - -
-------------- -------------- -------------- --------------
Net loss $ (95) $ (93) $ (187) $ (162)
============== ============== ============== ==============
Basic and diluted loss per share $ (.03) $ (.03) $ (.05) $ (.05)
Weighted-average number of common
shares outstanding 3,466 3,466 3,466 3,466
============== ============== ============== ==============
Total comprehensive loss $ (102) $ (93) $ (192) $ (162)
============== ============== ============== ==============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
SIX MONTHS ENDED
JUNE 30
1999 1998
---------------- ----------------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (187) $ (162)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 5 4
Changes in operating assets and liabilities:
Investment in past due accounts receivable 1 -
---------------- ----------------
Accounts payable and accrued liabilities (10) (13)
---------------- ----------------
Net cash used in operating activities (191) (171)
---------------- ----------------
INVESTING ACTIVITIES
Purchase of equipment - (17)
---------------- ----------------
Net cash used in investing activities - (17)
---------------- ----------------
FINANCING ACTIVITIES
Payments on borrowings (3) (1)
---------------- ----------------
Net cash used in financing activities (3) (1)
---------------- ----------------
Net decrease in cash and cash equivalents (194) (189)
Cash and cash equivalents at beginning of period 290 666
---------------- ----------------
Cash and cash equivalents at end of period $ 96 $ 477
================ ================
</TABLE>
See accompanying notes.
1
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements are those of the
Company and its subsidiaries, all of which are wholly owned, and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation for the periods indicated
have been included. Operating results for the six month period ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. The Balance Sheet at December 31, 1998 has been
derived from the audited financial statements at that date, but does not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. The accompanying financial
statements should be read in conjunction with the audited consolidated financial
statements (including the notes thereto) for the year ended December 31, 1998.
Certain amounts shown in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
2. COMPREHENSIVE LOSS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, which requires disclosure of
total non-stockholder changes in equity in interim periods and additional
disclosures of the components of non-stockholder changes in equity on an annual
basis. Total comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED Six Months ended
JUNE 30 June 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $ (95) $ (93) $(187) $(162)
Unrealized loss on marketable securities (7) - (5) -
-------------- -------------- -------------- --------------
Total comprehensive loss $ (102) $ (93) $(192) $(162)
============== ============== ============= ==============
</TABLE>
2
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. INCOME TAXES
The Company has determined that a valuation allowance should be applied against
the deferred tax assets related to the net operating losses of the Company due
to uncertainty regarding the assets' realizability. The difference between the
tax benefit recorded for the six months ended June 30, 1999 and the benefit
calculated at the federal statutory rate is primarily due to the valuation
allowance applied against the deferred tax assets.
4. PENDING TRANSACTIONS
On April 12, 1999 the Company entered into an agreement and plan of merger with
OptiCare Eye Health Centers, Inc. (OptiCare), a provider of consulting,
administrative and other support services to optometry and ophthalmology eyecare
centers located in Connecticut, and with PrimeVision Health, Inc. (Prime), a
vertically integrated vision services company, whereby each of those companies
would be merged with two wholly-owned, newly organized subsidiaries of the
Company in an all-stock transaction by the Company issuing 97.5% of the
Company's common stock to the stockholders of OptiCare and Prime.
The Prime merger will be accounted for as a reverse acquisition by Prime of
Saratoga, a subsidiary of the Company, at book value with no adjustments
reflected to historical values. The Company's merger with OptiCare will be
accounted for by the purchase method of accounting with the excess of purchase
price over the estimated fair value of the assets acquired being recorded as
goodwill.
To satisfy certain conditions of the Prime/OptiCare merger, the Company proposes
to contribute substantially all of its assets (other than approximately 92% of
the capital stock of Saratoga Holdings I, Inc., a Texas corporation ("SHI"), and
approximately $150,000 in cash) to Saratoga Resources, a Texas corporation
("Saratoga-Texas"), which is a wholly-owned subsidiary of the Company. The
Company will then distribute to the stockholders of the Company, prior to the
effective time of the Prime/OptiCare merger, the following:
(i) all the capital stock of Saratoga-Texas, and
(ii) the capital stock of SHI not held by Saratoga-Texas.
3
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. PENDING TRANSACTIONS (CONTINUED)
Saratoga-Texas will continue its operations in the energy industry, utilizing
its database for oil and gas prosper evaluation and development. Saratoga-Texas
will have its own separate management, control and incentive structure.
The Company has filed a registration statement on Form S-4 with the Securities
and Exchange Commission to register up to 8,800,000 shares of its common stock
to be issued to the former securities holders of Prime and OptiCare in the
Prime/OptiCare merger. The registration statement was declared effective by the
Commission as of July 30, 1999.
The Company has called a special meeting of stockholders for August 10, 1999, to
vote upon the proposals necessary to authorize the Company to carry out the
Prime/OptiCare merger. The spin-off of Saratoga-Texas will not be effected
unless the Prime/OptiCare merger is effected.
The Company has filed a registration statement on Form SB-2 with the Securities
and Exchange Commission (SEC) under the Securities Act of 1933 to register the
proposed spin-off of approximately 92% of the common stock of its wholly owned
subsidiary, SHI, to the stockholders of the Company on a one-for-one basis. The
remaining balance will be contributed to SaratogaTexas.
4
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Audited Consolidated Financial Statements
Index to Financial Statements
-----------------------------
<S> <C>
Report of Independent Auditors.........................................................................F-2
---
Consolidated Balance Sheets as of December 31, 1997 and 1998...........................................F-4
---
Consolidated Statements of Operations
for the years ended December 31, 1997 and 1998......................................................F-5
---
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997 and 1998......................................................F-6
---
Consolidated Statements of Cash Flows
for the years ended December 31, 1997 and 1998......................................................F-7
---
Notes to Consolidated Financial Statements.............................................................F-9
---
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
Saratoga Resources, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Saratoga
Resources, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Saratoga Resources, Inc. and Subsidiaries at December 31, 1998, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
March 31, 1999
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Saratoga Resources, Inc.
Austin, Texas
We have audited the accompanying consolidated balance sheet of Saratoga
Resources, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Saratoga Resources,
Inc. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Hein & Associates LLP
Houston, Texas
January 15, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share amounts)
DECEMBER 31
1997 1998
----------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 666 $ 290
Marketable securities - 11
Trade receivables, less allowance for doubtful accounts of
$23 at December 31, 1997 and 1998 - -
Investment in past due accounts receivable - 10
----------------- ------------------
Total current assets 666 311
----------------- ------------------
Equipment, net of accumulated depreciation 44 36
----------------- ------------------
Total assets $ 710 $ 347
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued liabilities $ 2 $ 10
Accrued legal 16 -
Current maturities of debt 4 5
----------------- ------------------
Total current liabilities 22 15
----------------- ------------------
Long-term debt, net of current portion 21 16
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized - -
Common Stock, $.001 par value; 50,000,000 shares
authorized, 3,465,292 shares issued and outstanding at
December 31, 1997 and 1998 3 3
Additional paid-in capital 2,490 2,490
Accumulated deficit (1,824) (2,148)
Treasury stock, at cost (2) (2)
Other comprehensive loss - (27)
----------------- ------------------
Total stockholders' equity 667 316
----------------- ------------------
Total liabilities and stockholders' equity $ 710 $ 347
================= ==================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
YEARS ENDED DECEMBER 31
1997 1998
----------------- ------------------
<S> <C> <C>
Revenues:
Gain on sale of marketable securities $ - $ 19
Interest income 31 19
Other 4 1
----------------- ------------------
35 39
Costs and expenses:
Depreciation 7 11
General and administrative 446 350
Loss on marketable securities - 1
Interest expense 9 1
----------------- ------------------
462 363
Gain arising from settlement of lawsuit 309 -
----------------- ------------------
Loss before income taxes (118) (324)
Income tax benefit - -
----------------- ------------------
Net loss $ (118) $ (324)
================= ==================
Basic and diluted loss per share: $ (.03) $ (.09)
================= ==================
Weighted-average number of common shares outstanding 4,260 3,465
================= ==================
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(in thousands)
COMMON STOCK Additional Other Total
------------------- Paid-in Accumulated Treasury Comprehensive Stockholders'
SHARES Amount Capital Deficit Stock Loss Equity
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 6,809 $ 7 $ 2,909 $(1,706) $(2) $ - $1,208
Acquisition of stock arising
from settlement of lawsuit (2,465) (3) (244) - - - (247)
Purchase of stock arising from
settlement of lawsuit (8) - (1) - - - (1)
Purchase of stock from former
directo (871) (1) (174) - - - (175)
Net loss - - - (118) - - (118)
----------------------------------------------------------------------------
Balances at December 31, 1997 3,465 3 2,490 (1,824) (2) - 667
Net loss - - - (324) - - (324)
Unrealized loss on marketable
securities - - - - - (27) (27)
----------------------------------------------------------------------------
Comprehensive loss - - - - - - (351)
----------------------------------------------------------------------------
Balances at December 31, 1998 3,465 $ 3 $ 2,490 $(2,148) $(2) $(27) $ 316
============================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
YEARS ENDED DECEMBER 31
1997 1998
------------------ -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(118) $(324)
Adjustment to reconcile net loss to net cash used in operating
activities:
Realized gain on sale of marketable securities, net - (18)
Depreciation 7 11
Provision for doubtful accounts 23 -
Gain arising from settlement of lawsuit (309) -
Changes in operating assets and liabilities:
Trade receivables 52 -
Investment in past due accounts receivable - (10)
Accounts payable and accrued liabilities (154) 8
Accrued legal (3) (16)
------------------ ------------------
Net cash used in operating activities (502) (349)
------------------ -------------------
INVESTING ACTIVITIES
Purchase of equipment (5) (3)
Purchase of marketable securities - (62)
Sale of marketable securities - 42
------------------ -------------------
Net cash used in investing activities (5) (23)
------------------ -------------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Saratoga Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(in thousands)
YEARS ENDED DECEMBER 31
1997 1998
------------------ -------------------
<S> <C> <C>
Financing activities
Purchase of stock from former director $ (175) $ -
Purchase of stock in settlement of lawsuit (1) -
Payments on borrowings (1) (4)
------------------ -------------------
Net cash used in financing activities (177) (4)
------------------ -------------------
Net decrease in cash and cash equivalents (684) (376)
Cash and cash equivalents at beginning of year 1,350 666
------------------ -------------------
Cash and cash equivalents at end of year $ 666 $ 290
================== ===================
Supplemental cash flow information:
Cash paid for interest $ 9 $ 1
Cash paid for income taxes $ - $ -
Equipment acquired with long-term debt $ 26 $ -
</TABLE>
See accompanying notes.
F-8
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies
ORGANIZATION
Saratoga Resources, Inc., a Delaware corporation, (the "Company", "Saratoga" or
the "Registrant") had traditionally been engaged in oil and gas exploration and
development of properties located in far southwest and east Texas and in
Louisiana.
During 1997 the Company entered into a purchase and sale agreement for the
acquisition of certain oil and gas properties for a purchase price of $27.5
million. The Company was ultimately unsuccessful in consummating the
acquisition, but was awarded a $400,000 break-up fee, which has been recorded as
a reduction of general and administrative expenses during 1997.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all investments with maturities of ninety days or less
when purchased to be cash equivalents.
F-9
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
All marketable securities are classified as available-for-sale and are available
to support current operations or to take advantage of other investment
opportunities. These securities are stated at estimated fair value based upon
market quotes. Unrealized gains and losses, net of tax, are computed on the
basis of specific identification and are included as a separate component of
stockholders' equity. Realized gains, realized losses, and declines in value,
judged to be other-thantemporary, are included in Other Income. The cost of
securities sold is based on the specific identification method and interest
earned is included in Interest Income.
INVESTMENT IN PAST DUE ACCOUNTS RECEIVABLE
On November 12, 1998, the Company's wholly owned subsidiary Saratoga Holdings I,
Inc. acquired a portfolio of past due accounts receivable for approximately
$10,300 and recorded it at cost. These receivables represent amounts previously
due various major retail businesses arising from the sale of various consumer
products. The face amount of these receivables totals $223,907. The ultimate
collection of these receivables will depend on a variety of factors, many of
which are outside the Company's control. Any collections will reduce the asset
balance until it is $-0-, with any remaining collections recorded as revenue.
EQUIPMENT
Equipment is recorded at cost less accumulated depreciation. Depreciation of
equipment is computed using the straight-line basis over the five year estimated
useful life of the assets.
Ordinary maintenance and repairs are charged to expense, and expenditures which
extend the physical or economic life of the assets are capitalized. Gains or
losses on disposition of assets are recognized in income and the related assets
and accumulated depreciation accounts are adjusted accordingly.
F-10
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. This statement
prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
LOSS PER SHARE
The Company follows the provisions of SFAS No. 128, Earnings Per Share. Basic
net loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted net loss per share is calculated using the weighted average
number of outstanding shares of Common Stock plus dilutive common stock
equivalents. Diluted net loss per share has not been presented as the effect of
the assumed exercise of warrants is antidilutive due to the Company's net loss.
As such, the numerator and the denominator used in computing both basic and
diluted pro forma net loss per share allocable to holders of common stock are
equal.
COMPREHENSIVE LOSS
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which requires disclosure of total non-stockholder changes
in equity in interim periods and additional disclosures of the components of
non-stockholder changes in equity on an annual basis.
Total comprehensive loss was as follows (in thousands):
YEARS ENDED DECEMBER 31,
1997 1998
------------------ -----------------
Net loss $(118) $(324)
Unrealized loss on marketable securities - (27)
Comprehensive loss $(118) $(351)
================== =================
F-11
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENTS
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
establishes reporting standards for a company's operating segments in annual
financial statements and the reporting of selected information about operating
segments in financial statements. The adoption of SFAS No. 131 had no effect on
the disclosure of segment information as the Company continues to consider its
business activities as a single segment.
CONCENTRATIONS OF CREDIT RISK
The Company maintains in a single bank deposits which exceed the amount of
federal deposit insurance available. Management believes the possibility of loss
on these deposits is minimal.
RECLASSIFICATIONS
Certain reclassifications have been made in prior year amounts to conform to the
current year's presentation.
2. EQUIPMENT
Equipment consists of the following (in thousands):
DECEMBER 31
1997 1998
------------------ ------------------
Office equipment $22 $25
Automobile 31 31
------------------ ------------------
53 56
Less accumulated depreciation 9 20
------------------ ------------------
$44 $36
================== ==================
F-12
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT
As of December 31, 1998, long-term debt consisted of a note payable to a bank
due in monthly installments of $564, including interest at 10%. The note payable
is due August 27, 2002 and is collateralized by an automobile.
Future maturities of the long-term debt as of December 31, 1998 are as follows:
$5,000 in 1999; $6,000 in 2000; $6,000 in 2001; and $4,000 in 2002.
4. LEASE OBLIGATIONS
At December 31, 1998 the Company maintains an office in Austin, Texas on a
month-to-month basis at a current rate of $2,175 per month. The Company also
leases an office in Houston, Texas from a director of the Company on a
month-to-month basis at no charge.
5. INCOME TAXES
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $420,000. The net operating losses will expire
beginning in 2012, if not utilized.
Utilization of the net operating losses may be subject to a substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986. The annual limitation, if applicable, may result in the expiration
of net operating losses.
F-13
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes for the years ended December 31, 1997 and 1998 are
as follows:
1997 1998
------------------ -----------------
Deferred tax liabilities:
Depreciable assets $ - $ (717)
------------------ -----------------
Total deferred tax liabilities - (717)
Deferred tax assets:
Tax carryforwards 40,000 155,414
Accrual to cash adjustment - 3,700
----------------- -----------------
Total deferred tax assets 40,000 159,114
----------------- -----------------
Net deferred tax assets before
valuation allowance 40,000 158,397
Valuation allowance for deferred tax assets (40,000) (158,397)
----------------- -----------------
Net deferred tax assets (liabilities) $ - $ -
================= =================
The Company has established valuation allowances equal to the net deferred tax
assets due to uncertainties regarding their realization. The valuation allowance
increased by approximately $118,000 during the year ended December 31, 1998 due
to net operating losses which were not benefited.
The reconciliation of income tax attributable to continuing operations at the
U.S. federal statutory tax rates to income tax expense is:
1997 1998
------------------ -----------------
Pre-tax book income 34.0% 34.0%
State taxes (net of federal benefit) - 3.0%
Permanent items and other - (0.4)%
Application of valuation allowance (34.0)% (36.6)%
------------------ -----------------
Comprehensive loss $(118) $(351)
================== =================
F-14
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. LITIGATION
From May, 1996 to May, 1997, the Company was involved in litigation with Joseph
T. Kaminski ("Kaminski"), a former executive officer and director of the
Company. As previously reported by the Company in a report filed with the
Securities and Exchange Commission, the most recent of which was Form 8-K (filed
March 14, 1997), the Company and two of its directors, Thomas F. Cooke and
Randall F. Dryer, entered into a settlement agreement and full and final release
(the "settlement agreement") dated March 10, 1997 with Kaminski, in full
settlement of all matters concerning the lawsuits.
Pursuant to the terms of the settlement agreement, Kaminski transferred all of
his equity interest in the Company, consisting of 2,465,371 shares of common
stock and 100,000 stock warrants, to the Company and forgave amounts owed him by
the Company of $62,000. As a result of this settlement, the Company recorded a
gain of $309,000. Kaminski also agreed to sell to the Company 8,000 shares of
the Company's common stock held in trust in exchange for approximately $1,000.
Both the Company and Kaminski agreed to release and discharge any and all claims
or causes of action of every nature existing between the parties.
Accordingly, all claims and counterclaims by and against the Company and its two
directors Thomas F. Cooke and Randall F. Dryer have been dismissed, and there is
no pending litigation against the Company or its directors at December 1997 or
1998.
7. STOCKHOLDERS' EQUITY
Preferred stock may be issued from time to time in one or more series. Prior to
each issuance, the Board of Directors is authorized to determine the number of
shares, relative powers, preferences, rights and qualifications, limitations or
restrictions of all shares of such series. Shares of any series of preferred
stock which have been acquired by the Company or which, if convertible or
exchangeable, have been converted into or exchanged for shares of authorized and
unissued shares of stock of another class, would have the status of authorized
and unissued shares of preferred stock, subject to the conditions adopted by the
Board of Directors of the Company.
The Company issued warrants to a former consultant to purchase 6,667 shares of
common stock for an exercise price of 120% of the share price that is offered to
the public in any public offering. These warrants were issued in December, 1993
and have no expiration date. The Company issued warrants to the Company's
Chairman to purchase 100,000 shares of common stock for an exercise price of
$1.60 per share. These warrants were issued in December, 1994 and expire in May,
1999.
F-15
<PAGE>
Saratoga Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. PENDING TRANSACTIONS
On December 22, 1998 the Company entered into letters of intent with PrimeVision
Health, Inc., a vertically integrated vision services company, and OptiCare Eye
Health Centers, Inc., a provider of consulting, administrative and other support
services to optometry eyecare centers located in Connecticut, whereby the
Company would acquire Prime and OptiCare in an all-stock transaction by issuing
97.5% of the Company's common stock to the shareholders of Prime and OptiCare.
However, the Company has not yet entered into a formal binding agreement for
these acquisitions.
As contemplated by the Prime Vision/OptiCare merger, Saratoga-Delaware proposes
to contribute substantially all of its assets to Saratoga-Texas, its
wholly-owned subsidiary. Saratoga-Texas will continue its operations in the
energy industry, utilizing its database for oil and gas prospect evaluation and
development. Saratoga-Delaware then proposes to spin-off all of the stock to
Saratoga-Texas to the current stockholders of Saratoga-Delaware on a one-for-one
basis to provide Saratoga-Texas with its own separate management, control and
incentive structure.
Saratoga-Delaware formed Saratoga Holdings in November 1998 as a wholly-owned
subsidiary, and has caused it to commence operations in the business of
acquiring, reselling, managing and collecting portfolios of delinquent and
defaulted accounts receivable. Saratoga-Delaware has filed a registration
statement with the Securities and Exchange Commission under the Securities Act
of 1933 to register the proposed spin-off of approximately 90% of the common
stock of Saratoga Holdings to the stockholders of Saratoga-Delaware on a
one-for-one basis. The remaining 10% will be contributed to Saratoga-Texas.
F-16
<PAGE>
EXHIBIT INDEX
The following exhibits were filed with the original 10SB12g on October 6, 1999:
Exhibit No. Description
- ----------- -----------
3(i) Restated Articles of Incorporation
3(ii) Bylaws
16 Letter on changes in certifying account
21 Subsidiaries of the Registrant
27 Financial Data Schedule
